How to prepare for bankruptcy
Friday, February 29th, 2008Knowing how to prepare for bankruptcy is going to make it a smoother process and since you’re the one brewing the storm you need to do some planning before and during the process of your petition. This will have a huge impact on your life afterwards so you should prepare as soon as you begin thinking that filing bankruptcy is an option for you.
One way to prepare for bankruptcy is to ask yourself if you’ll be secure in your present job if you file. People who work in government programs that require security clearances will need to consider this factor very carefully. This event must be reported to your employer’s security center as required by the government for individuals holding a security clearance. The U.S. government will run an investigation on your case to determine whether you can keep your clearance or not, so in this case filing bankruptcy needs to be considered carefully. Even if you work for a commercial employer, find out what their requirements are for reporting life changing events such as bankruptcy. If you don’t have a job, you should do your best to get employed before you file your petition, since more employers are now doing credit and background checks on their applicants before hiring.
If you’re married, if at all possible, try to file alone, if both you and your spouse file together you will both suffer the same consequences afterwards. If only one of you files then at least you got the other to be the face of good credit for both of you. This can be more challenging especially if you have joint accounts, and if both your names are on the house and car titles. These are typically all known as community properties and are considered to be part of the bankruptcy estate, this is not the case in every state. You will want to consult with a professional on this point to see if it is possible in your case.
Stop using your credit cards at least 90 days before you file. This is a very important point especially if you’re filing bankruptcy chapter 7 in which unsecured debts like credit card balances are discharged completely. Having a history of continuous use of your credit cards will make the bankruptcy trustee want to investigate the charges you made in more detail to determine if you’re really eligible to file. Your credit purchases should not reflect anything that’s not considered a necessity. So do not make the mistake of making luxury type purchases with your cards, to include TVs, stereo systems or any type of expensive gadgets. Remember your transaction history will be reviewed by the bankruptcy trustee and these types of purchases will make it hard to pass that you’re truly in financial hardship. Necessities such as food, utilities and medical expenses can be acceptable, but don’t over do it.
When your bankruptcy case is filed, make sure you take advantage of the benefit of not having to pay your creditors and put this money away in a money market account. Your creditors will be expecting you to continue to make payments but legally they can not pursue this if you’re in the process of filing bankruptcy, this is called the automatic stay. Saving this money will prepare you for what’s to come after bankruptcy and you’ll be glad you did. The process can last for up to 3 months for bankruptcy chapter 7 from the time you file, so save that money, this is not the time to live it up. The process can last several months for bankruptcy chapter 13 while your repayment plan is reviewed and accepted.
Also do not transfer your savings account or any other assets to any of your relatives, and try to pass it as payment for a loan you owed them. All of this will be investigated during the bankruptcy process and the trustee will find out, and when he does find out, the trustee can sue to get that money back and repay your creditors. You must understand that the bankruptcy trustee’s role is to look after the interest of the creditors not yours. So the trustee is concerned with making sure you are being honest and that your creditors get paid with the proceeds of any assets that can be liquidated if you’re filing chapter 7 or mediating a fair repayment plan if you’re filing chapter 13, if you try to hide your assets you will most likely get caught.
On that same note, you should also not make any large donations either in cash, jewelry or any other valuables. This is another question you’ll be asked and it can look suspicious if the donations were made to people you know and/or the items donated were high valued items that could have been listed as assets.
Consider other options, there are alternatives to bankruptcy and they’re not always obvious, so take a look at the alternatives post to find out some options. Only once you have exhausted all options or see no feasible alternative to bankruptcy then you should proceed with your case. Also remember to take advantage of a free bankruptcy evaluation, many bankruptcy law firms offer free consultations and even if you don’t file with them you’ll gather great information about the process and a definite idea about the costs.
